Re-testing Wagner's Law: Structural breaks and disaggregated data for South Africa
Keywords:
Wagner’s law; Granger causality; dis-aggregated government expenditures; Structural breaks; South Africa
Abstract
Direction of causality between government expenditure and output growth is pertinent for a developing country since a sizeable volume of economic resources is in the hands of the public sector. This paper investigates the Wagner's law in South Africa over the post-apartheid era, 1994-2015. This paper is unique to present studies since it uses disaggregated government expenditure and controls for structural breaks. The Granger non-causality test of Toda & Yamamoto, a superior technique compared to conventional Granger causality testing, is employed and this paper finds no support for Wagner's law. However, there is causality running from total government and education expenditures to output. This finding is in line with the Keynesian framework. It is recommended in the paper that the government should take an active role in promoting output growth through increases in education expenditures in particular.
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References
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Reimers, E. H. (1992). Comparisons of tests for multivariate cointegration. Statistical papers, 33(1), 335-359. http://link.springer.com/article/10.1007/BF02925336#Bib1 Rossouw, J., Joubert, F. & Breytenbach, A. (2014). South Africa's Fiscal Cliff: A Reflection on the Appropriation of Government Resources. Tydskrif vir Geesteswetenskappe, 54(1), 144–162. National Treasury, South Africa. (2016). Budget Review 2016. http://www.treasury.gov.za/documents/national%20budget/2016/review/FullReview.pdf SASSA. (2016). A statistical summary of social grants in South Africa. Retrieved from http://www.sassa.gov.za/index.php/knowledge-centre/statistical-reports?download=518:statistical-report-no-2-of-2016 Sideris, D. (2007). Wagner's Law in 19th Century Greece: A Cointegration and Causality Analysis. Bank of Greece, Working Papers, 64.
Singh, B. & Sahni, B. S. (1984). Causality between public expenditure and economic growth in Malaysia. Journal of Economic Development, 23, 71-80. Ssekuma, R. (2011). A study of cointegration models with applications. Manuscript, University of South Africa.http://uir.unisa.ac.za/bitstream/handle/10500/4821/thesis_ssekuma_r.pdf?sequence=1 Tarschys, D. (1975). The growth of public expenditures - Nine modes of explanation. Scandinavian Political Studies, 10(1), 9-32. Toda, H. Y. & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66, 225-260. Wagner, A. (1893). Grundlegung der politischen Ökonomie. 3rd edition, Leipzig: Winter.
Ziramba, E. (2008). Wagner's Law: An Econometric Test for South Africa. South African Journal of Economics, 76 4), 596-606. http://dx.doi.org/10.1111/j.1813-6982.2008.00218.x.
Published
2017-09-04
How to Cite
Mlilo, M., & Netshikulwe, M. (2017). Re-testing Wagner’s Law: Structural breaks and disaggregated data for South Africa. Journal of Economics and Behavioral Studies, 9(4(J), 49-61. https://doi.org/10.22610/jebs.v9i4(J).1821
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Research Paper
Copyright (c) 2017 Mthokozisi Mlilo, Matamela Netshikulwe
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